2) D&G Textile company is evaluating two different operating structures. Data about those structures are shown below. Annual interest expense of the firm is $200, it has common shares outstanding of 2,000, and a tax rate of 20 percent. Fixed Price Variable Cost _per Unit $1 $1 per Unit $0.75 Costs operating structure 1: operating structure 2: $500 $1,200 $0.70 (a) For each operating structure, calculate (a1)EBIT and EPS at 5,000 and 10,000 units (a2)the degree of operating leverage (DOL) and degree of total leverage (DTL) using 10,000 units as a base sales level. (a3)the operating breakeven point in units. (b) Which operating structure has greater operating leverage and business risk? (c) If D&G projects sales of 10,000 units, which operating structure is recommended?

2) D&G Textile company is evaluating two different operating structures. Data about those structures are shown below. Annual interest expense of the firm is $200, it has common shares outstanding of 2,000, and a tax rate of 20 percent. Fixed Price Variable Cost _per Unit $1 $1 per Unit $0.75 Costs operating structure 1: operating structure 2: $500 $1,200 $0.70 (a) For each operating structure, calculate (a1)EBIT and EPS at 5,000 and 10,000 units (a2)the degree of operating leverage (DOL) and degree of total leverage (DTL) using 10,000 units as a base sales level. (a3)the operating breakeven point in units. (b) Which operating structure has greater operating leverage and business risk? (c) If D&G projects sales of 10,000 units, which operating structure is recommended?

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter14: Decentralized Operations

Section: Chapter Questions

Problem 3SEQ: Division A of Kern Co. has sales of $350,000, cost of goods sold of $200,000, operating expenses of...

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